If you have money in the Bank (or Building Society) you will be all too aware that interest rates on deposits are incredibly low at the moment. You will only have something vaguely approaching a decent interest rate if you still have a fixed term account that you took out a while ago.
The Bank of England base rate is just 0.1% and this is of course what is used as the primary guide for banks and building societies setting their rates for savers.
If you are a client, you will have heard me say that it is important to hold cash. This is to provide for emergencies that happen in your life and planned spending on projects – be that building, buying, giving or experiencing something. Holding cash means that those projects are not jeopardised by market events. You do not need to sell investments to get your plans done. Every £1 should have a purpose.
You will also know that holding cash for a long time, rather than investing it is not a clever move. If inflation is running at roughly 2-3% a year on average and interest rates are less than that, then the purchasing power of your money is going backwards.
Of course, sometimes projects get delayed or deferred and you need to take a sensible approach. For what its worth, if you intend to withdraw a specific sum within 3 years (perhaps 5) then I would not encourage you to invest it but hold it as cash. That however presents the problem of where to put the money.
One of the things that I have learned over the years is that low interest rates generally annoy people more than most aspects of money. There has been a growing problem of scams – aimed at cash savers offering rates that are not plausible for cash. Many are scams, last week the FCA (our regulator) moved to ban the marketing of “mini-bonds” which, whilst about 5 years too late, is better late than never. Its worth noting the webpage of the FCA ScamSmart site (here).
You will remember the credit crunch and Icelandic Banking crisis. Perhaps you had savings at Northern Rock and witness the queues to withdraw money. Many will be concerned about the financial viability of a Bank that holds their savings. Your cash is generally protected up to £85,000 should your Banks fail. The FSCS limit is £85,000 per bank (per person). One of the problems with this is that some banks share the same banking license because they merged. Sometimes this catches savers off guard.
So searching for a good rate and being mindful of the FSCS protection limits takes some time, the process of opening an account is often tedious, the prospect of doing this with a different Bank every few months is not a welcome one.
CASH MANAGEMENT SOLUTIONS
There is a solution. There are various cash management services that are now available. We can assess which is the most appropriate for you. To generalise, these offer a single application and access to somewhere between 10 and 50 Banks. All paying better rates. You can structure the service so that some money is instant access, some at say 35 days and some 6 months, a year or longer. Achieving better rates whilst diversifying your deposits across different Banks.
These services were once only really available to those with significant cash reserves, now they are available to our clients. Whilst there may be a Bank or Building Society somewhere that provides a tiny bit more interest at some point, the purpose of these services is to make life easier and provide assurance of not holding more than £85,000 with any single bank (though you can if you want to).
ITS TIME TO GET THINGS DONE
I recently sent out a 10 minute challenge, Day 4 or task 4 was to list your bank accounts. There is a short video of me and a pdf to print off to complete. May I suggest/ask/advise/urge you to do this – that way I can check to see if you can get a bit more interest and take advantage of the full FSCS protections.
You may be interested to know that the service isn’t simply for your personal accounts, but can be for a business, a Trust or a Charity.
You can read more articles about Pensions, Wealth Management, Retirement, Investments, Financial Planning and Estate Planning on my blog which gets updated every week. If you would like to talk to me about your personal wealth planning and how we can make you stay wealthier for longer then please get in touch by calling 08000 736 273 or email firstname.lastname@example.org
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Solomon’s Independent Financial Advisers
The Old Bakery, 2D Edna Road, Raynes Park, London, SW20 8BT